Macro Digest: False stabilisation and trade wars

Macro 5 minutes to read

Steen Jakobsen

Chief Economist & CIO

Summary:  As Chinese trade war rhetoric becomes more strident the odds of a detente being reached at next month's G20 summit have shrunk to just 50/50. The upshot may be policy moves in the US and infrastructure development programmes in China.


The G20 meeting in Japan is a very bad place to go looking for a trade deal between China and the US (the WTO is one of the main agenda points).
The rhetoric change in China this week takes down our 75/25 for a deal odds to 50/50. Remember: Nothing happens in vacuum in China.
Risk is our next “inflection point” expected in July/August could move forward to just past the G20 meeting on June 28/29.
Policy response are likely to be lower Fed policy rates in the US, infrastructure spending in China combined with much lower RRR overall. China needs jobs, the US needs growth 
XAUCNY is the trade to watch on RISK ON/OFF – we are now long XAUCNY.

Apart from the overall more negative tone coming from trade talks we also have a keen eye on the Iran vs US escalation we are seeing. The mobilisation of US forces is significant and I for one fail to see end game from this except of course from the obvious “deterrent" Cold War script.
Source: Bloomberg
Important links:

The G20 Summit  June 28-29.

Japanese prime minister Shinzo Abe's priorities for the Osaka Summit.

Dispute over the appointment of a WTO appellate body.

Tweets from Steen Jakobsen on the changing china rhetoric: here and here.

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